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Analysis of Households’ Willingness to Pay for Electricity Connection Options in Rural Areas of Ethiopia: Implication for Cost Recovery

Abstract:

A modern form of energy, electricity for household use in particular, is an important instrument in alleviating poverty in developing countries. This is particularly true for Ethiopia, a country where there are huge potentials for producing electricity. However access and cost of connecting to this service for most of the rural poor is difficult. Based on a cross sectional data collected from 220 households from two Kebeles of Hetosa and Boset Woredas and using contingent valuation survey method, this study investigates and assesses how much a household is willing to pay for different electricity connection options and identify factors that influence willingness. An interval data Logit and bivariate probit models are used to analyze responses drawn from double bounded dichotomous choice questions of the survey. The result of the study shows that respondents’ willingness to pay alone was not enough to recover the cost of connection. Households were willing to pay more for grid-electricity than Photovoltaic regardless of the payment methods. Furthermore, the monthly based WTP value for both products options is greater than the lump sum WTP value at a one time payment. Factors like household income, age of household head, education level, location and bid price are found to be significant in influencing households WTP for both types of electricity connections. Hence, based on the finding some of the policy recommendations are: adjusting appropriate payment modality (monthly based payment scheme), and a sort of subsidy for electricity connection seems to be viable